SurgePays, Inc.

SURGEPAYS, INC. AND SUBSIDIARIES

Note 1 -Organization and Nature of Operations

Organization and Nature of Operations

SurgePays, Inc. (“SurgePays,” “we,” or the “Company”) is a telecommunications and financial technology company focused on delivering wireless connectivity and point-of-sale solutions to underserved and value-conscious communities across the United States. The Company’s mission is to enhance access to essential digital services where people live, shop, and work.

We operate through three primary business segments: (1) our MVNO wireless brands, (2) our MVNE enablement platform (HERO), and (3) our point-of-sale (POS) and fintech services. These businesses are supported through subsidiaries including SurgePhone Wireless, LLC, SurgePays Fintech, Inc., ECS Prepaid, LLC, and Torch Wireless, LLC, among others.

The Company and its subsidiaries are organized as follows:

All of the following entities have nominal operations.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2026 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the operating results for the full fiscal year or any future period.

These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on April 15, 2026.

Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.

Nasdaq Continued Listing Compliance

In March 2026, the Company received two notices from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating non-compliance with certain continued listing requirements.

On March 18, 2026, the Company was notified that it no longer meets the minimum market value of listed securities (“MVLS”) requirement of $35,000,000. On March 23, 2026, the Company received a separate notice of non-compliance with the $1.00 minimum bid price requirement. These notices have no immediate effect on the listing or trading of the Company’s common stock on Nasdaq.

Under Nasdaq listing rules, the Company has 180 calendar days to regain compliance with each requirement - until September 14, 2026 for the MVLS deficiency and September 21, 2026 for the minimum bid price deficiency. Compliance with the MVLS requirement will be regained if the market value of listed securities closes at or above $35,000,000 for at least ten consecutive business days during the compliance period. Compliance with the minimum bid price requirement will be regained if the closing bid price of the Company’s common stock is at or above $1.00 per share for at least ten consecutive business days during the applicable period.

If the Company does not regain compliance with the minimum bid price requirement within the initial 180-day period, it may be eligible for an additional 180-day compliance period, subject to meeting certain other continued listing standards and notifying Nasdaq of its intention to cure the deficiency.

If the Company’s common stock were ultimately delisted from Nasdaq, it could have a material adverse effect on the liquidity and market price of its shares, its ability to raise equity financing, its access to the public capital markets, and its ability to provide equity incentives to employees. The Company is actively monitoring its compliance status and intends to pursue all available options to regain compliance within the applicable cure periods.

Going Concern, Liquidity and Management’s Plans

As reflected in the accompanying consolidated financial statements, for the three months ended March 31, 2026, the Company had:

Additionally, at March 31, 2026, the Company had:

The Company has unrestricted cash on hand of $1,991,166 at March 31, 2026. The Company has historically incurred significant losses and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. In making this assessment, the Company performed a comprehensive analysis of its current circumstances, including its financial position, cash flows and cash usage forecasts for the twelve months ending March 31, 2027, and its current capital structure including equity-based instruments and outstanding debt obligations.

The Company believes it does not have sufficient cash resources on hand to meet its current obligations for a period of more than one year from the issuance date of these financial statements.

These conditions create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management has evaluated the significance of these conditions and has developed plans intended to mitigate the substantial doubt. The Company’s specific strategic and financing plans include the following:

The Company is also actively pursuing additional equity and debt financing alternatives and strategic partnerships. These plans are subject to successful execution and prevailing market conditions, and there can be no assurance that they will generate sufficient liquidity to alleviate the substantial doubt.

Note 2 -Summary of Significant Accounting Policies

Principles of Consolidation and Non-Controlling Interest

These consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by us is included in Non-controlling Interests in the consolidated financial statements.

Goodwill and Related Impairment - ClearLine Mobile, Inc. and Torch Wireless

The Company tests goodwill for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the carrying amount of a reporting unit may exceed its fair value, in accordance with ASC 350-20, Intangibles - Goodwill and Other.

During the year ended December 31, 2025, the Company performed its annual goodwill impairment assessment and determined that the fair value of the ClearLine Mobile, Inc. (“CLMI”) reporting unit was less than its carrying amount. The CLMI reporting unit was unable to generate revenues or cash flows sufficient to sustain operations. Accordingly, the Company recognized a full goodwill impairment charge of $2,500,000, representing the entire carrying amount of goodwill attributable to CLMI. This charge is included in other expense in the accompanying consolidated statements of operations for the year ended December 31, 2025.

The Company also determined that the fair value of the Torch Wireless reporting unit was less than its carrying amount and recognized a full goodwill impairment charge of $800,000 during the year ended December 31, 2025. This charge is included in other expense in the accompanying consolidated statements of operations for the year ended December 31, 2025.

Goodwill consisted of the following:

Note Receivable (Sale of Former Subsidiary) and Related Impairment

On May 7, 2021, the Company disposed of its former subsidiary True Wireless, Inc. In connection with the sale, the Company received an unsecured promissory note receivable from Blue Skies Connections, LLC in the original principal amount of $176,851, bearing interest at 0.6% per annum, with a default interest rate of 10%. The note was payable in twenty-five (25) monthly installments of principal and accrued interest of $7,461, commencing June 2023.

On July 12, 2023, the Company provided Notice of Default to Blue Skies Connections, LLC for failure to make required payments, and accelerated the full outstanding balance in accordance with the terms of the note. The note was placed on non-accrual status upon default in July 2023, and no interest income (including default interest at 10%) has been recognized since that date due to uncertainty of collection.

During the year ended December 31, 2025, the Company determined that the note was uncollectible and recognized an impairment loss of $176,851, representing the full carrying amount of the note receivable. This charge is included in other expense - net in the accompanying consolidated statements of operations for the year ended December 31, 2025.

See Note 8 for additional discussion of related legal proceedings.

The Note Receivable was as follows:

Business Segments and Concentrations

The Company uses the “management approach” to identify its reportable segments. The management approach requires companies to report segment financial information consistent with information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. The Company manages its business as multiple reportable segments. See Note 10 regarding segment disclosure.

Revenues related to the Mobile Virtual Network Operator (SurgePhone and Torch Wireless) business segment are 100% derived from programs administered by the Federal Communications Commission (FCC), and all funds related to these programs are received directly from organizations under the direction of the FCC and subject to administrative rulings, statutory changes, and other funding restrictions that could impact the Company’s operations in this segment.

Revenues related to the Point-of-Sale and Prepaid Services business segment are derived from suppling digital top-ups to a broad base of Independent Sales Organizations (ISOs), direct dealer stores, and convenience retailers, enabling us to sell domestic and international airtime and data replenishments for multiple carriers. Top ups are purchased at a wholesale rate and resold at a retail pricing, with the Company capturing margin on each transaction.

Accounts receivable related to these programs made up approximately 86% and 84% of accounts receivable at March 31, 2026 and December 31, 2025, respectively.

Use of Estimates

Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.

Significant estimates at March 31, 2026 and December 31, 2025 include the following:

Risks and Uncertainties

The Company operates in an industry that is subject to intense competition and changes in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.

The Company has experienced, and in the future may experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, the following:

These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.

Fair Value of Financial Instruments

The Company accounts for financial instruments in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-tier hierarchy that prioritizes observable inputs over unobservable inputs:

The Company’s financial instruments include cash, accounts receivable, accounts payable, and accrued expenses, including related-party amounts. As of March 31, 2026 and December 31, 2025, the carrying values of these instruments approximate their fair values due to their short-term nature.

See Note 6 for the Company’s derivative liabilities, which are measured at fair value on a recurring basis using Level 3 inputs.

Cash and Cash Equivalents, Restricted Cash and Concentration of Credit Risk

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.

The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC, which is $250,000.

At March 31, 2026 and December 31, 2025, respectively, the Company did not experience any losses on cash balances in excess of FDIC insured limits.

Restricted Cash

The Company classifies as restricted cash any cash balances that are subject to legal or contractual restrictions limiting their availability for general corporate use. As of March 31, 2026 and December 31, 2025, restricted cash totaled $424,995 and $281,811, respectively, representing reserve amounts held in a Company-owned deposit account at the lender under the Company’s accounts receivable financing facility. The reserve is subject to the lender’s first-priority security interest and is available to cover charge-backs, customer adjustments, and service fees related to advances under the facility. See Note 5.

The following table reconciles cash and restricted cash reported on the consolidated balance sheets to the total cash and restricted cash presented on the consolidated statements of cash flows:

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.

Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information, and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made. Bad debt expense is recorded as a component of general and administrative expenses in the accompanying consolidated statements of operations.

At March 31, 2026 and December 31, 2025, the allowance for doubtful accounts was $0, andno bad debt expense or recoveries were recorded during the years then ended.

Inventory

Inventory primarily consists of cell phones, store racking, and sim cards. Inventories are stated at the lower of cost or net realizable value using the average cost valuation method.

At March 31, 2026 and December 31, 2025, the Company had inventory of $339,570 and $339,570, respectively.

Impairment of Long-lived Assets

Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with ASC 360-10-35-15,Impairment or Disposal of Long-Lived Assets. Factors considered in determining whether a potential impairment exists include, but are not limited to:

In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds their fair value.

There wereno impairment losses on long-lived assets for the three months ended March 31, 2026 and 2025, respectively.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.

Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations.

Management reviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

There wereno impairment losses for the three months ended March 31, 2026 and 2025, respectively.

Derivative Liabilities

The Company evaluates financial instruments that contain characteristics of both liabilities and equity in accordance with FASB ASC 480,Distinguishing Liabilities from Equity, and FASB ASC 815,Derivatives and Hedging.

Accounting for Derivative Liabilities

Derivative liabilities are remeasured at fair value at each reporting period, with changes in fair value recognized in the consolidated statements of operations as a gain or loss on derivative remeasurement. The Company uses the Black-Scholes option pricing model to estimate the fair value of these instruments.

Derivative Expense

When a bifurcated embedded derivative is recognized in connection with the issuance of a convertible debt instrument, the derivative is recorded at fair value on the commitment date and a corresponding debt discount is recorded against the host debt instrument, limited to the face amount of the debt. To the extent the initial fair value of the derivative liability, together with any other debt discounts (including original issue discount, equity-related discounts, and debt issuance costs), exceeds the face amount of the related debt, the excess is recognized immediately as day-one derivative expense in the consolidated statements of operations on the commitment date.

Conversion and Extinguishment of Derivative Liabilities

When a debt instrument with an embedded conversion option is converted into shares of common stock or repaid, the Company:

For equity-classified derivative liabilities (such as certain warrants) that are extinguished, any remaining liability balance is reclassified to additional paid-in capital.

Reclassification of Equity Instruments to Liabilities

Equity instruments initially classified as equity are reclassified to liabilities if they no longer meet the criteria for equity classification. Upon reclassification, the instruments are remeasured at fair value on the date of reclassification, with any difference recognized in earnings.

Derivative Liability Balances

As of March 31, 2026 and December 31, 2025, the Company had derivative liabilities of $184,983 and $0, respectively.

See Notes 6 and 7 for additional information.

Debt Discounts

The Company accounts for original issue discounts (OID), equity instruments issued with debt (common stock, warrants, etc.), and debt issuance costs as debt discounts in accordance with FASB ASC 835-30. These discounts are recorded as a reduction of the carrying amount of the related debt and amortized to interest expense over the term of the debt using the effective interest method (or straight-line method when not materially different). The aggregate debt discounts cannot exceed the face amount of the debt.

Right-of-Use Assets and Lease Obligations

The Company accounts for leases in accordance with ASC 842,Leases.

Recognition and Measurement

At lease commencement, the Company recognizes a right-of-use (“ROU”) asset and a corresponding lease liability measured at the present value of the lease payments over the lease term. The Company evaluates ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Lease Classification

All of the Company’s leases are classified as operating leases and are presented as right-of-use assets and operating lease liabilities on the consolidated balance sheets. The Company has no finance leases. Operating lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses in the accompanying consolidated statements of operations.

Short-Term Leases

The Company has elected the short-term lease exemption under ASC 842 for leases with an initial term of twelve (12) months or less. These leases are not recorded on the balance sheet, and the related lease payments are expensed on a straight-line basis over the lease term.

Lease Term and Renewal Options

In determining the lease term, the Company evaluates whether renewal options are reasonably certain to be exercised. Factors considered include the useful life of leasehold improvements relative to the lease term, the economic performance of the business at the leased location, the comparative cost of renewal rates versus market rates, and any significant economic penalties for non-renewal. The Company’s operating leases contain renewal options but no residual value guarantees. Management does not currently expect to exercise any renewal options, which are therefore excluded from the measurement of ROU assets and lease liabilities.

Discount Rate

As the implicit rate in the Company’s leases is not readily determinable, the Company uses an incremental borrowing rate (“IBR”) that represents the rate it would incur to borrow on a collateralized basis over a similar term in a similar economic environment.

See Note 8 for additional information regarding the Company’s operating leases.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606,Revenue from Contracts with Customers. Revenue is recognized when control of promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company applies the following five-step model:

All contract consideration is fixed and determinable at contract inception. The Company’s contracts do not contain variable consideration, significant financing components, or multiple performance obligations. The Company does not offer returns, refunds, or warranties, and no arrangements are cancellable.

Mobile Virtual Network Operators

Torch Wireless is licensed to provide subsidized mobile broadband services through the Lifeline program to qualifying low-income customers. The Company’s performance obligation is satisfied as mobile broadband services are provided to eligible subscribers.

Revenue is recognized in the month services are provided to Lifeline subscribers who remain active as of the last day of the month.

At month-end, the Company determines the number of eligible active subscribers based on internal usage data and subscriber eligibility status. The Company then submits a report to the Universal Service Administrative Company (“USAC”), which administers the Lifeline reimbursement program on behalf of the federal government. Upon submission of this report, the related accounts receivable is recorded. Payment is typically received by the 28th day of the following month.

Point-of-Sale and Prepaid Services

Revenues are generated through the sale of telecommunication products, including mobile phones, wireless top-up refills, and other mobile-related products through the Company’s online web portal. The performance obligation is satisfied at the point of sale, at which time the web portal initiates an automated clearing house (“ACH”) transaction and revenue is recognized. The Company has determined it is the principal in these arrangements, as it takes control of the products prior to transferring them to the customer, and accordingly records revenue on a gross basis with related costs recorded as cost of revenues.

Contract Liabilities - Deferred Revenue

Contract liabilities represent customer deposits received prior to the satisfaction of the related performance obligation. Upon completion of the performance obligation, the liability is relieved and revenue is recognized.

At March 31, 2026 and December 31, 2025, deferred revenue was $0.

The following represents the Company’s disaggregation of revenues for the three months ended March 31, 2026 and 2025:

The above disaggregation of revenues includes the following entities:

Mobile Virtual Network Operators (SPW and TW),

Point-of-Sale and Prepaid Services (Surge Fintech and ECS); and

Other Corporate Overhead (Surge Blockchain and formerly LogicsIQ and Injury Survey)

Cost of Revenues

Cost of revenues consists of tablet purchases, mobile phone purchases, purchased telecom services including data usage and access to wireless networks. Additionally, cost of revenues consists of call center costs, prepaid phone cards, commissions, and advertising costs.

Income Taxes

Accounting Policy

The Company accounts for income taxes using the asset and liability method prescribed by ASC 740,Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company records a valuation allowance against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Uncertain Tax Positions

The Company follows the provisions of ASC 740 with respect to uncertainty in income taxes. Tax positions are recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the taxing authorities.

As of March 31, 2026 and December 31, 2025, the Company hadno uncertain tax positions that qualify for recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No such interest or penalties were recorded for the three months ended March 31, 2026 and 2025, respectively.

Valuation Allowance and Net Operating Loss Carryforwards

The Company has net operating loss carryforwards that have been evaluated for applicability in offsetting current taxable income. Federal net operating loss carryforwards are limited to 80% of the current year’s net taxable income.

During 2024, the Company entered a three-year cumulative loss position and remained in that position at March 31, 2026. As a result, a full valuation allowance has been recorded against all net operating loss carryforwards at March 31, 2026 and December 31, 2025, respectively.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated statements of operations.

The Company recognized marketing and advertising costs during the three months ended March 31, 2026 and 2025, respectively, as follows:

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718,Compensation—Stock Compensation. Compensation cost is measured at the grant-date fair value of the award and is recognized over the requisite service period (generally the vesting period) on a straight-line basis.

This guidance applies to share-based payment awards granted to both employees and non-employees. Pursuant to ASU 2018-07,Improvements to Nonemployee Share-Based Payment Accounting, awards granted to non-employees are accounted for in substantially the same manner as awards granted to employees, with fair value determined on the grant date.

Fair Value Estimation

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. The model incorporates the following key assumptions:

Forfeitures and Expense Classification

The Company has elected the practical expedient under ASU 2016-09 to account for forfeitures as they occur rather than estimating them in advance. This election is applied consistently to all stock-based awards. Stock-based compensation expense is classified in the consolidated statements of operations as a component of general and administrative expenses.

Tax Treatment

The Company applies the provisions of ASU 2016-09 related to the recognition of all excess tax benefits and tax deficiencies in income tax expense in the period in which they occur and the classification of cash paid for tax withholdings on behalf of employees as financing activities in the consolidated statement of cash flows.

Stock Warrants

The Company issues warrants to purchase shares of its common stock in connection with financing transactions, consulting arrangements, and strategic partnerships. The Company evaluates each warrant issuance under Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity, and ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity, to determine the appropriate balance sheet classification.

Warrants that are not puttable or mandatorily redeemable, do not require net cash settlement, and are indexed solely to the Company’s own common stock are classified as equity instruments and recorded in additional paid-in capital. Warrants that do not meet the requirements for equity classification are recorded as liabilities at fair value, with changes in fair value recognized in earnings at each reporting date.

The fair value of warrants is measured using an appropriate fair value model, taking into consideration the specific terms and features of each instrument.

Warrants issued in connection with the sale of common stock are recorded at fair value as an allocation of the proceeds within additional paid-in capital.

Warrants issued in connection with the issuance of debt are recorded as a debt discount at fair value and amortized to interest expense over the term of the related debt using the effective interest method.

Warrants issued in exchange for services are recorded at fair value and recognized as expense over the requisite service period, or immediately upon issuance if no service period exists.

Basic and Diluted Earnings (Loss) per Share

Computation

The Company computes basic and diluted earnings (loss) per share in accordance with ASC 260-10-45,Earnings Per Share, as amended by ASU 2020-06,Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period.

Diluted earnings (loss) per share includes the impact of potentially dilutive securities and is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding plus the weighted-average number of common stock equivalents and other potentially dilutive securities during the period.

Treasury Stock

Treasury shares are excluded from the denominator in computing both basic and diluted earnings (loss) per share because they are not considered outstanding.

During the year ended December 31, 2025, the Company reacquired 333,333 shares of treasury stock for $999,999 ($3 per share) in connection with a third-party convertible debt lender arrangement (see Note 5).

Potentially Dilutive Securities

Potentially dilutive common shares include contingently issuable shares, common stock issuable upon the exercise of stock options and warrants (calculated using the treasury stock method in accordance with ASC 260-10-55), and convertible debt instruments, if applicable.

These securities may be dilutive in future periods. However, in periods in which the Company reports a net loss, diluted loss per share is equal to basic loss per share because the inclusion of potential common stock equivalents would be anti-dilutive.

The following potentially dilutive equity securities were outstanding as of March 31, 2206 and 2025:

Warrants and stock options included as common stock equivalents represent those that are fully vested and exercisable. See Note 9.

Sufficiency of Authorized Shares

As of March 31, 2026 and December 31, 2025, the Company has 500,000,000 authorized shares of common stock, respectively, which is sufficient to accommodate any potential exercises of common stock equivalents.

Treasury Stock

Accounting Policy

The Company accounts for treasury stock using the cost method in accordance with ASC 505-30,Equity—Treasury Stock. Under this method, treasury stock is recorded at cost on the date of repurchase and presented as a reduction in stockholders’ equity. Purchases, sales, issuances, or retirements of treasury stock do not affect the consolidated statements of operations.

Reissuance of Treasury Stock

When treasury shares are reissued, they are removed from treasury stock at their original cost. Any excess of the reissuance price over cost is credited to additional paid-in capital. Any deficiency is charged first to additional paid-in capital to the extent of previously recorded credits from treasury stock transactions, with any remaining deficiency charged to retained earnings.

Retirement of Treasury Stock

The Company periodically assesses whether to retain treasury shares or retire them. Upon retirement, the shares are removed from issued stock and a corresponding adjustment is made to retained earnings.

Related Parties

The Company identifies and discloses related party relationships and transactions in accordance with ASC 850, “Related Party Disclosures”, and follows guidance set forth by the SEC under Regulation S-X, Rule 4-08(k) regarding related party disclosures.

A party is considered related to the Company if it meets any of the following criteria:

The Company follows the SEC’s Regulation S-K, Item 404(a), which requires the disclosure of related party transactions exceeding a materiality threshold and details on the nature of the relationship, transaction terms, and amounts involved.

During the three months ended March 31, 2026 and 2025, respectively, the Company incurred expenses with a related party (annual rental agreement) in the normal course of business as follows:

1 - represents an affiliate of our Chief Executive Officer (Kevin Brian Cox)

From time to time, the Company may use credit cards to pay corporate expenses, these credit cards are in the names of certain of the Company’s officers and directors. These amounts are insignificant.

See Note 5 for debt transactions with our Chief Executive Officer.

Recent Accounting Standards

Recently Adopted Accounting Standards

FASB ASU 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, which enhances reportable segment disclosure requirements by requiring disclosure of significant segment expenses regularly provided to the chief operating decision maker (“CODM”), the title and position of the CODM, and extending certain annual disclosures to interim periods. It also clarifies that single-reportable-segment entities must apply ASC 280 in its entirety. This ASU was effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, with retrospective application required.

The Company adopted ASU 2023-07 effective January 1, 2025. The adoption resulted in enhanced segment disclosures but did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

FASB ASU 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, which enhances income tax disclosure requirements by standardizing and disaggregating rate reconciliation categories and requiring disclosure of income taxes paid by jurisdiction. This ASU was effective for annual periods beginning after December 15, 2024, and may be applied on a prospective or retrospective basis. The Company adopted ASU 2023-09 effective January 1, 2025.

The adoption resulted in enhanced income tax disclosures but did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

FASB ASU 2025-05 – Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets

In July 2025, the FASB issued ASU 2025-05, which provides a practical expedient that permits entities to assume that current economic conditions as of the balance sheet date will remain unchanged over the remaining life of current (short-term) accounts receivable and current contract assets arising from transactions accounted for under ASC 606. The Company early adopted ASU 2025-05 effective January 1, 2025, and elected the practical expedient. The amendments were applied prospectively. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

FASB ASU 2024-04 - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments

In November 2024, the FASB issued ASU 2024-04, which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. The ASU was effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual periods.

The Company adopted ASU 2024-04 effective January 1, 2026 on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Recently Issued Accounting Standards Not Yet Adopted

FASB ASU 2024-03 / ASU 2025-01 – Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures

In November 2024, the FASB issued ASU 2024-03, which requires public business entities to disclose, in both annual and interim reporting periods, disaggregated information about certain income statement expense line items in a tabular format, along with a qualitative reconciliation to the captions on the face of the financial statements. In January 2025, the FASB issued ASU 2025-01 to clarify the effective date for non-calendar year-end entities. The ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and may be applied on either a prospective or retrospective basis.

The Company is currently assessing the potential impact of ASU 2024-03 / 2025-01 on its consolidated financial statement disclosures.

Other Accounting Standards Updates

The Company has evaluated all other recently issued accounting standards not yet effective and has determined that the adoption of such standards is not expected to have a material impact on the Company’s financial statements or disclosures.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no material effect on the consolidated results of operations, stockholders’ equity, or cash flows.

Note 3 –Property and Equipment

Property and equipment consisted of the following:

Depreciation and amortization expense for the three months ended March 31, 2026 and 2025 was as follows:

These amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.

Note 4 –Intangibles

Intangibles consisted of the following:

Amortization expense for the three months ended March 31, 2026 and 2025 was as follows:

Estimated amortization expense for each of the succeeding years is as follows:

Note 5 –Debt

The following represents a summary of the Company’s notes payable – SBA government, notes payable – related parties, convertible notes payable and notes payable, key terms, and outstanding balances at March 31, 2026 and December 31, 2025, respectively:

Notes Payable – SBA government

Economic Injury Disaster Loan (“EIDL”)

During 2020, the Company received Economic Injury Disaster Loan (“EIDL”) proceeds under a U.S. Small Business Administration program made available in response to the COVID-19 pandemic, which were used for working capital purposes. Monthly installment payments of principal and interest range from $74 to $731 and are payable over thirty (30) years from the date of the promissory note, with no prepayment penalty.

Note Payable – Related Party

The following summarizes activity in the Company’s note payable to a related party (the Chief Executive Officer):

On March 12, 2024, the Company consolidated outstanding principal of $4,584,563 and accrued interest of $498,991 into a single unsecured note with a face amount of $5,083,554. The note bears interest at 10% per annum (15% upon default) and is repayable in monthly installments of $164,039 over 36 months, maturing in December 2026.

Beginning in July 2025, monthly payments were temporarily suspended due to cash flow constraints. The note holder confirmed that the suspension does not constitute an event of default. Interest continues to accrue at the contractual 10% rate, and the note terms were not modified. Management is evaluating options to resume or restructure payments.

Conversion of Related Party Note Payable to Common Stock

On March 23, 2026, the Company issued 800,000 shares of common stock to its Chief Executive Officer in partial conversion of a related party note payable (see Note 9). The shares were valued at their fair market value of $707,200 ($0.884 per share), determined using the quoted closing market price on the issuance date. In connection with the transaction, the Chief Executive Officer forgave an additional $292,800 of principal on the note.

The forgiveness of debt by the Chief Executive Officer, in his capacity as both a principal shareholder and creditor, was accounted for as a capital contribution and credited to additional paid-in capital. No gain on debt extinguishment was recognized. The aggregate value of the transaction ($1,000,000) was applied as a reduction to the outstanding balance of the related party note payable.

The following is a detail of the Company’s Notes Payable - Related Party:

Convertible Notes Payable and Relate Debt Discounts

The Company has issued multiple convertible promissory notes to institutional and individual investors that are convertible into shares of the Company’s common stock. The following table summarizes the principal terms and the gross and net carrying value of the Company’s convertible notes payable as of March 31, 2026 and December 31, 2025:

The following is a summary of the Company’s Convertible Notes Payable and related Debt Discounts:

The following is a detail of the Company’s Convertible Notes Payable:

Convertible Notes Payable - Notes #1 through #6

Overview

Year Ended December 31, 2025

The Company entered into six (6) Note Purchase Agreements with institutional investors and issued Convertible Notes (collectively, the “Notes”) with an aggregate obligation (including guaranteed interest) of $9,694,999. Note #1 is a senior secured obligation collateralized by a first-priority lien on substantially all of the Company’s and its subsidiaries’ assets. Notes #2 through #6 are unsecured obligations.

The Notes are summarized in detail below.

Note #1 - Senior Secured Convertible Note

On May 12, 2025, the Company issued a Senior Secured Convertible Note (the “Note”) in the original principal amount of $6,999,999, resulting in net cash proceeds of $5,405,000 after $175,000 of legal fees and $420,000 of broker fees. The Note is fully guaranteed by certain of the Company’s subsidiaries. Concurrent with issuance, the Company repurchased 333,333 shares of its common stock from the investor at $3.00 per share; these shares were cancelled and retired and are recorded as treasury stock (see Note 9).

The Note accrues interest at 1.25% per month (15.00% per annum), payable monthly in cash or as payment-in-kind at the Company’s election. Following the Second Amendment (January 31, 2026) and Third Amendment (March 26, 2026), each evaluated and accounted for as a debt modification under ASC 470-50 (no gain or loss recognized; carrying value not adjusted), the Note currently amortizes in equal monthly installments of $500,000 commencing June 30, 2026, with the remaining balance due on the November 12, 2027 maturity date. Pursuant to the Third Amendment, the investor advanced an additional $500,000 of principal under the Note (increasing the aggregate principal to $7,499,999), and the Company agreed to obtain shareholder approval by July 17, 2026 to permit issuance of conversion shares in excess of 19.99% of the Company’s outstanding common stock (the “Exchange Cap”); until such approval is obtained, conversions are limited to the Exchange Cap pursuant to Nasdaq Rule 5635(d).

The Note is convertible at the investor’s option into shares of the Company’s common stock at $4.00 per share. The conversion option is indexed solely to the Company’s own common stock and satisfies the fixed-for-fixed criteria under ASC 815-10-15-74(a), qualifying for the scope exception from derivative accounting. Accordingly, the Note is accounted for in its entirety as a debt instrument.

Warrant Issuance

In connection with the issuance of the original note ($6,999,999), the Company issued warrants to purchase 700,000 shares of its common stock at an exercise price of $6.00 per share. The warrants are immediately exercisable and expire on May 12, 2030.

The Company allocated a portion of the proceeds to the warrants based on their relative fair value, determined using the Black-Scholes option pricing model. The fair value of the warrants at issuance was estimated at $1,084,927, which was recorded as a debt discount with a corresponding credit to additional paid-in capital.

The assumptions used in the Black-Scholes model were as follows:

Debt Discount

In connection with the issuance of the Note, the Company recorded total debt discounts of $1,679,927, consisting of the following:

Debt discounts are being amortized to interest expense over the revised contractual term of the Note through the Maturity Date (as amended) of November 12, 2027 using the effective interest method in accordance with ASC 835-30.

Notes #2 through #6

The Company issued five (5) separate one-year unsecured Convertible Notes summarized in the tables below (collectively, the “Notes”).

In accordance with ASC 835-30, original issue discounts, guaranteed interest capitalized at issuance, the fair value of common shares issued to the investors (determined based on the quoted closing price of the Company’s common stock on each respective grant date), and professional fees were recorded as a reduction of the carrying value of the respective Notes and are amortized to interest expense using the effective interest method over each Note’s one-year contractual term.

Each of these notes is convertible at the investor’s option into common stock at fixed conversion prices in three tranches: 25% of the total obligation at $4.00 per share, 25% at $6.00 per share, and 50% at $6.00 per share. Upon an event of default or the Company’s failure to pay any amortization payment when due, all tranches may alternatively be converted at 85% of the lowest daily volume-weighted average price (“VWAP”) of the Company’s common stock during the five (5) trading days immediately preceding the conversion date.

The fixed conversion prices are subject to customary anti-dilution adjustments. Subject to specified price and volume conditions and the investor’s prior written consent, the Company may also effect a mandatory conversion of all or a portion of any 2025 Note.

The Company evaluated the embedded conversion features under ASC 815-10-15-74(a) and ASC 815-40. The fixed-price conversion options ($4.00 and $6.00 per share) satisfy the fixed-for-fixed criteria under ASC 815-40-15 and qualify for the scope exception from derivative accounting. The contingent VWAP-based conversion feature is exercisable only upon an event of default; management has assessed the likelihood of default as remote, and the feature is therefore considered clearly and closely related to the debt host under ASC 815-10-15-74(a) and qualifies for the equity scope exception. Each 2025 Note is accounted for in its entirety as a debt instrument. The Company reassesses the probability of default at each reporting date; should default no longer be considered remote, the contingent feature would be bifurcated and recognized as a derivative liability at fair value. As of March 31, 2026, the Company was in compliance with all terms of the 2025 Notes.

Convertible Notes Payable - Other (Notes #7 and #8) (Derivative Liabilities)

In March 2026, the Company issued two unsecured convertible promissory notes to institutional investors along with accompanying common stock purchase warrants.

The notes were issued at a discount due to original issue discount, capitalized guaranteed interest, debt issuance costs, and the fair value of the warrants. These discounts are recorded as a reduction of the notes’ carrying value and amortized to interest expense using the effective interest method over the contractual term.

The notes mature twelve months (12) from issuance and bear a one-time guaranteed interest charge of 8% on the original principal, fully earned at issuance. They are repayable in four monthly installments followed by a final payment of all remaining amounts, with a 22% default interest rate.

Each note includes embedded conversion features in three tranches:

The fixed-price conversion options in the first two tranches qualify for the ASC 815-40-15 scope exception and are not bifurcated. The third tranche is considered remote and is also not bifurcated. The notes are accounted for entirely as debt, with default probability reassessed each reporting period.

The Company also issued five-year warrants to purchase 375,000 shares of common stock at $1.25 per share (150,000 related to Note #7 and 225,000 related to Note #8). Due to certain cash settlement features, the warrants are accounted for as derivative liabilities. Their aggregate fair value at issuance ($215,223) was recorded as a derivative liability and debt discount. The warrants are remeasured at fair value each reporting period, with changes recognized in earnings.

See Note 6 for additional information on derivative liabilities.

Convertible Secured Notes Payable Financing – Notes #9 - #15

On January 6, 2026, the Board authorized a private placement of up to $20,000,000 of convertible secured promissory notes (the “Notes”). The Notes bear interest at 14.5% per annum, payable quarterly in arrears, and mature 24 months from the respective issuance date. Torch Wireless, a subsidiary, unconditionally guarantees the Notes, which are secured by a junior perfected security interest in substantially all of the Company’s assets, subordinated to existing senior indebtedness under an intercreditor agreement.

The Notes are convertible at the holder’s option at any time into common stock using tiered conversion prices (20% tranches) based on the portion of principal and accrued interest converted. Conversion pricing differs by closing:

All conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, and similar pro rata equity events. The Notes contain no down-round, full-ratchet, or variable conversion price provisions. Conversions are subject to a 4.99% beneficial ownership limitation (increaseable to 9.99% upon 61 days’ prior written notice) and are settled solely in shares of common stock.

Six months after issuance, the Company may force conversion at the applicable tiered prices, subject to no Event of Default, minimum volume-weighted-average price (VWAP) and trading volume thresholds, and freely tradeable shares.

Upon an uncured Event of Default, the outstanding principal, accrued and unpaid interest, and default interest at 18% per annum become immediately due and payable, and the holder may convert the Default Amount into common stock at the applicable tiered conversion price.

As of March 31, 2026, the Company had issued $975,000 in aggregate principal amount of Notes (Notes #9 through #15). Subsequent to March 31, 2026, the Company issued an additional $175,000 in principal amount under the lower-tier pricing.

In connection with the issuances, the Company issued an aggregate of 31,525 commitment shares of common stock to the holders as additional consideration for the financing. The commitment shares were recorded at fair value on the respective issuance dates, based on the closing market prices of the Company’s common stock, which ranged from $0.83 to $2.04 per share, for an aggregate fair value of $54,828. The fair value of the commitment shares was recorded as a debt discount against the carrying amount of the related Notes and is being amortized to interest expense over the contractual term of the Notes using the effective interest method.

The Company evaluated the embedded conversion features under ASC 815-15-25-1 and ASC 815-40. The tiered fixed conversion prices are indexed solely to the Company’s common stock and are subject only to standard anti-dilution adjustments, satisfying the fixed-for-fixed criterion and qualifying for the scope exception in ASC 815-10-15-74(a). The Notes are accounted for as a single liability under ASC 470-20, as amended by ASU 2020-06, with no separation of the conversion feature into an equity component.

The following tables summarize each convertible note and their related debt discount components:

Convertible Notes Payable - Net

Note #1 ($7,499,999) is a combination of principal from 2025 ($6,999,999) and 2026 ($500,000). Net cash proceeds in 2026 are reflected in the table above plus an additional $500,000, totaling $2,225,000, the Company also paid direct debt offering costs of $14,500.

Debt Discount Components

These convertible notes are repayable in either monthly or quarterly installments inclusive of the capitalized guaranteed interest, with any unpaid amounts due and payable as part of the final installment, as follows:

Notes Payable

The following is a summary of the Company’s Notes Payable:

The following is a detail of the Company’s Notes Payable:

Note #1 - Note Issuance and Warrants

On September 9, 2025, the Company entered into a six-month (6) Senior Secured Note with an individual (the “Investor”), in the original principal amount of $1,000,000 (the “Note”).

As of March 31, 2026, this note ($1,000,000) was in default.

Warrant Issuance and Classification

In connection with the issuance of the Note, the Company also issued warrants to purchase 30,000 shares of its common stock at an exercise price of $2.50/share. The warrants are immediately exercisable and remain outstanding through September 9, 2028.

Debt Discount

In connection with the issuance of the $1,000,000 note, the Company issued warrants to purchase 30,000 shares of common stock. The Company allocated a portion of the proceeds to the warrants based on their relative fair value, determined using the Black-Scholes option pricing model. The fair value of the warrants was estimated to be $48,418, which was recorded as a debt discount and is being amortized to interest expense over the term of the note. The Company also recorded a corresponding increase to additional paid-in capital of $48,418. See Note 9.

The fair value of the warrants was determined using the Black-Scholes model with the following assumptions:

The debt discount will be fully amortized over the contractual term of the note (1 year).

Note #2 – Accounts Receivable Financing Facility

On September 9, 2025, the Company entered into a one-year Business Loan and Security Agreement (the “Agreement”) with Paragon Bank (“Paragon”) establishing a $1,500,000 accounts receivable financing facility (the “Facility”). The Facility matures on September 9, 2026 and is secured by a first-priority lien on substantially all of the Company’s accounts receivable and related collateral. The Facility is a full-recourse arrangement under which the Company remains liable to Paragon for all advances, including amounts related to uncollected or disputed customer receivables.

Because the Company retains substantially all of the risks and rewards of ownership of the receivables transferred to Paragon under the full-recourse terms of the Agreement, the transactions do not qualify as sales under Accounting Standards Codification (ASC) 860-10-40. Accordingly, the underlying receivables remain on the Company’s consolidated balance sheets as accounts receivable, and the related cash advances received from Paragon are reported as a secured borrowing within current liabilities on the consolidated balance sheets. Service charges and related finance fees are recognized as interest expense in the consolidated statements of operations as incurred.

Borrowings under the Facility are available based on eligible accounts receivable, with maximum advances of up to 85% of the eligible borrowing base, subject to customary reserves, concentration limits, and reporting requirements. The Facility does not bear stated interest; the Company’s cost of funds under the Facility consists of service charges and related finance fees assessed by Paragon on factored invoice volume, together with a one-time loan origination fee of $5,000 paid at inception. Proceeds from the Facility are used to provide working capital financing and liquidity support for the Company’s operations.

Paragon retains a reserve account equal to 15% of receivables financed under the Facility to cover charge-backs, customer adjustments, and service fees. Amounts held in the reserve are released to the Company upon collection of the related underlying receivables, net of any applicable charge-backs and fees. The reserve is maintained in a Company-owned deposit account at Paragon Bank, subject to Paragon’s first-priority security interest and restrictions on withdrawal, and is presented as restricted cash on the Company’s consolidated balance sheets. At March 31, 2026 and December 31, 2025, the reserve balance was $424,995 and $281,811, respectively.

Service charges and related finance fees were $38,472 and $0 for the three months ended March 31, 2026 and 2025, respectively, and are recognized as interest expense in the consolidated statements of operations.

The Agreement contains customary affirmative and negative covenants, including:

The Agreement also provides that a change in ownership of 25% or more of the Company’s common stock constitutes an event of default. As of March 31, 2026 and December 31, 2025, the Company was in compliance with all covenants and other terms of the Agreement.

Debt Maturities

The following represents the maturities of the Company’s various debt arrangements for each of the five (5) succeeding years and thereafter as follows:

Note 6 –Derivative Liabilities

In connection with the issuance of convertible promissory notes (Notes #7 and #8), in March 2026, the Company issued 375,000 common stock purchase warrants. These warrants contain certain cash settlement features triggered upon events of default or change of control and therefore do not qualify for equity classification. Accordingly, the warrants are accounted for as derivative liabilities.

The derivative liabilities are measured at fair value on a recurring basis and are classified as Level 3 in the fair value hierarchy because their valuation relies on significant unobservable inputs. The Company determines the fair value of these warrant liabilities using the Black-Scholes option pricing model.

Valuation Assumptions

The Company used the following key assumptions to estimate the fair value of the derivative liabilities:

Derivative Liability Activity

Changes in the fair value of these derivative liabilities are recognized in the consolidated statements of operations as “Change in fair value of derivative liabilities” within other income (expense).

For the three months ended March 31, 2026 and 2025, the Company recorded a loss (gain) on the change in fair value of derivative liabilities of $30,241 and $0, respectively.

The following table presents a reconciliation of the beginning and ending balances for the Level 3 derivative liabilities for the three months ended March 31, 2026:

Note 7 –Fair Value of Financial Instruments

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis and classifies them within the fair value hierarchy under ASC 820. The Company’s fair value measurement policies, including the three-level hierarchy framework, are described in Note 2.

Recurring Fair Value Measurements

As of March 31, 2026, the Company had derivative liabilities classified as Level 3 in the fair value hierarchy. There were no derivative liabilities as of December 31, 2025.

These derivative liabilities (warrants issued with notes #7 and #8) are measured at fair value with significant unobservable inputs.

The Company had no other financial assets or liabilities measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025, respectively.

Note 8 –Commitments and Contingencies

Operating Leases

We have entered into various operating lease agreements, including our corporate headquarters. We account for leases in accordance with ASC Topic 842:*Leases,*which requires a lessee to utilize the right-of-use model and to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of operations. In addition, a lessor is required to classify leases as either sales-type, financing or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risk and rewards or control, the lease is treated as operating. We determine if an arrangement is a lease, or contains a lease, at inception and record the lease in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over the lease term. Lease right-of-use assets and liabilities at commencement are initially measured at the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at commencement to determine the present value of lease payments except when an implicit interest rate is readily determinable. We determine our incremental borrowing rate based on market sources including relevant industry data.

We have lease agreements with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.

We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.

Our leases, where we are the lessee, do not include an option to extend the lease term. For purposes of calculating lease liabilities, lease term would include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, included as a component of general and administrative expenses, in the accompanying consolidated statements of operations.

Certain operating leases provide for annual increases to lease payments based on an index or rate, our lease has no stated increase, payments were fixed at lease inception. We calculate the present value of future lease payments based on the index or rate at the lease commencement date. Differences between the calculated lease payment and actual payment are expensed as incurred.

Operating Lease

On October 1, 2024, the Company entered into a 32-month operating lease for 2,293 square feet of office space in San Salvador. The lease expires in May 2027. The initial monthly payment is $18,958, which includes base rent, estimated operating expenses, and sales tax. The lease is subject to annual increases of 3%.

In accordance with ASC 842,Leases, the Company recognized a right-of-use (“ROU”) asset and a corresponding lease liability of $565,650 upon lease commencement. The recognition of the ROU asset was a non-cash transaction.

The Company had no financing leases as of March 31, 2026 and December 31, 2025.

The tables below present information regarding the Company’s operating lease assets and liabilities at March 31, 2026 and December 31, 2025, respectively:

The components of lease expense were as follows:

Future minimum lease payments for the years ended December 31:

Employment Agreements (Chief Executive Officer and Chief Financial Officer)

Chief Executive Officer

In December 2023, the Company entered into an employment agreement with its Chief Executive Officer through December 31, 2028, as subsequently amended. The agreement provides for an annual base salary of $750,000 for the year ended December 31, 2023, with 3% annual increases thereafter, and an annual cash bonus of $870,000.

The agreement includes a long-term equity incentive program under the SurgePays, Inc. 2022 Omnibus Securities and Incentive Plan, pursuant to which the Company is required to grant the Chief Executive Officer 500,000 shares of restricted common stock annually for a minimum of five years. Because each annual grant requires separate Board approval, each grant constitutes a separate award under ASC 718. Compensation cost is measured at the grant-date fair value and recognized over the requisite service period, which in this case is expected to be the grant date itself (as the awards are fully vested upon grant), consistent with ASC 718-10-55-87 through 55-88.

The initial award of 500,000 shares was granted in monthly installments during the second half of 2024 and had a total grant-date fair value of $3,800,000 ($7.60 per share). These shares were fully vested and the related compensation expense was fully recognized in 2024. The second award of 500,000 shares was approved by the Board on June 26, 2025, with an original planned grant and vesting date of June 1, 2025. On December 31, 2025, the Company and the Chief Executive Officer entered into Amendment No. 3 to the Employment Agreement, which deferred the grant and vesting of this award to April 1, 2026 and also deferred payment of the 2025 annual cash bonus of $870,000 to April 1, 2026. Because no grant date had been established for this award as of December 31, 2025, no stock-based compensation expense has been recognized with respect to this award for the year ended December 31, 2025. The fair value of this award was $360,000 ($0.72/share), based upon the quoted closing market price on the grant date of April 1, 2026 (See Note 11).

Future awards of 500,000 shares are scheduled to be granted on or around June 1 of 2026, 2027, and 2028, and on each June 1 of any renewal term, with fair values to be determined at their respective grant dates.

The agreement also provides for additional performance-based restricted stock awards upon achievement of specified Revenue, EBITDA, and Market Capitalization thresholds, with potential award values ranging from $2,500,000 to $200,000,000. No such performance thresholds were met during the year ended December 31, 2025.

All awards vest immediately upon the Chief Executive Officer’s death, total disability, termination without cause, or a change in control, provided the executive remains employed by the Company at such time.

Chief Financial Officer

In November 2023, the Company finalized the terms of its employment agreement with its former Chief Financial Officer (CFO), providing for a base salary of $489,250 for the year ended December 31, 2024 and $503,928 for the year ended December 31, 2025, and an annual cash bonus of at least $510,000 for the year ended December 31, 2024, with the 2025 bonus subject to Board approval.

In November 2023, the Company granted 600,000 shares of restricted common stock to its former CFO, having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price on the grant date. The award was structured in two tranches:

All 600,000 shares vested in accordance with their original vesting schedules in their respective periods, and all compensation cost associated with this award has been fully recognized in the periods where services were provided.

In October 2025, the Company provided notice to the former CFO that his employment agreement would not be renewed upon its expiration on December 31, 2025. Subsequent to December 31, 2025, the Company and the former CFO entered into a separation agreement pursuant to which the former CFO will provide consulting services through June 30, 2026. In connection therewith, the Company will pay consulting fees of $250,000, payable in twelve equal monthly installments of approximately $20,833, as well as reimburse health insurance premiums under COBRA through December 31, 2026.

See Note 9 regarding the vesting provisions of these shares.

MVNx Reseller Agreement

In August 2024, the Company entered into an MVNx Reseller Agreement (the “AT&T Agreement”) with AT&T Mobility LLC (“AT&T”), pursuant to which the Company purchases wholesale wireless network services from AT&T for resale to the Company’s end users under the Company’s own brand. After an extensive systems integration with AT&T, commercial services under the AT&T Agreement did not commence until April 2025. The AT&T Agreement has an initial three-year term commencing on the Launch Date, defined as the date that is 90 days following the completion of such API integration. Following the initial term, the AT&T Agreement automatically renews for successive one-year periods unless either party provides written notice of non-renewal at least 120 days prior to the end of the then-current term.

Under the AT&T Agreement, the Company is subject to minimum annual spend commitments over the initial three-year term, as follows:

The aggregate minimum spend commitment over the initial term is $50,000,000. During each month of Year 1, the Company is invoiced for the greater of (i) actual usage charges incurred during that month or (ii) a specified monthly minimum floor that escalates beginning in Month 7 of the term (October 2025), reaching $3,500,000 in Month 12. During Years 2 and 3, the monthly obligation equals the greater of actual usage or one-twelfth of the applicable annual minimum commitment. To the extent cumulative invoiced payments in any contract year exceed the applicable annual minimum commitment, the excess is applied toward the minimum commitment for the following year. Any portion of an annual minimum commitment that remains unsatisfied at the end of the applicable contract year constitutes an unconditional payment obligation of the Company.

In accordance with Accounting Standards Codification (ASC) 440-10-50, the Company has evaluated its remaining obligations under the AT&T Agreement and determined that a material contractual commitment exists. As of December 31, 2025, the Company had a remaining unsatisfied minimum spend commitment of $1,981,142 under Year 1 of the AT&T Agreement, representing the portion of the $10,000,000 Year 1 minimum commitment not yet satisfied through invoiced amounts as of the balance sheet date. Amounts invoiced and due under the AT&T Agreement are reflected in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.

The remaining Year 1 unsatisfied commitment of $1,981,142 must be satisfied by March 2026, which represents the end of the Year 1 contract period, through ongoing usage charges and, to the extent actual usage is insufficient, minimum commitment payments. Thereafter, beginning in April 2026, the Company will be subject to the Year 2 minimum spend commitment of $15,000,000, payable monthly at the greater of actual usage or $1,250,000 per month.

Contingencies – Legal Matters

In the normal course of business, the Company may be subject to litigation, claims, and legal proceedings. The Company evaluates legal contingencies in accordance with FASB ASC 450-20-50, “Contingencies”, which requires recognition of a liability if an unfavorable outcome is both probable and can be reasonably estimated.

When a legal matter arises, the Company:

As of March 31, 2026, based on management’s review and consultation with legal counsel, the Company is not aware of any contingent liabilities that require accrual or disclosure in the consolidated financial statements.

Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.

District Court of Oklahoma County, OK, CJ-2021-5327, filed on December 13, 2021. Plaintiffs’ petition alleges breach of a Stock Purchase Agreement by SurgePays, SurgePhone Wireless, LLC, and Kevin Brian Cox (“Defendants”), and makes other allegations related to SurgePays’ consulting work with Jonathan Coffman, formerly a True Wireless employee. The petition requests injunctive relief, general damages, punitive damages, attorney fees and costs for alleged breach of contract, tortious interference with a business relationship, and fraud. Blue Skies alleged the Defendants are in violation of their non-competition and non-solicitation agreements related to the sale of True Wireless from SurgePays to Blue Skies. Defendants filed various dispositive motions with the Court demonstrating Oklahoma state law does not recognize non-compete agreements and non-solicitation agreements in the manner alleged by Plaintiffs, and the Court granted these motions, finding the non-solicitation and non-competition clauses in the Stock Purchase Agreement void as a matter of Oklahoma law. Defendants then filed additional dispositive motions on Plaintiffs’ claims in tort and equity, which the Court granted in part based on its prior rulings. Plaintiffs took the position the Court granting Defendants’ dispositive motions on these material issues only leaves partial contract claims that are inextricably intertwined with the remaining claims and defenses. Plaintiffs sought a certified interlocutory appeal of the Court’s orders. On March 10, 2025, the Oklahoma Supreme Court entered an order denying Plaintiffs’ Petition for Certiorari to review the certified interlocutory appeal. In December 2025, Judge Dishman recused himself from the case following a request from the Blue Skies and True Wireless parties and objection by SurgePays’ counsel. Judge Andrews has been assigned to the matter and has set remaining matters for status and briefing schedules on outstanding motions in the trial court. The case will now proceed in the district court on the parties’ remaining claims. Presently, there is no trial date.

In the Circuit Court of Tennessee for the 30th Judicial District at Memphis, Docket # CT-3219-23. On August 8, 2023, a complaint was filed by SurgePays for breach of a promissory note by Blue Skies Connections, LLC. The note at issue is dated June 14, 2021, and requires Blue Skies Connections to repay the principal sum of $176,850.56, by monthly payments of $7,461.37 commencing on June 1, 2023. Blue Skies Connections has failed to make any payments due under the terms of the note, and this breach entitles SurgePays to demand payment of the entire amount of the note together with all accrued interest. Blue Skies Connections responded by filing a Motion to Dismiss or, in the alternative, a Motion to Stay, taking the position that, under the prior suit pending doctrine, the subject promissory note is subject to the prior litigation instituted by Blue Skies Connections against SurgePays, styled Skies Connections, LLC and True Wireless, Inc. v. SurgePays, Inc., et al., Case No. CJ-2021-5327, District Court of Oklahoma County, Oklahoma. SurgePays elected to dismiss its complaint without prejudice and is in the process of evaluating re-filing the matter in the District Court of Oklahoma County, Oklahoma.

SurgePays, Inc. et al. v. Fina et al., Case No. CJ-2022-2782, District Court of Oklahoma County, Oklahoma

Plaintiffs SurgePays, Inc. and Kevin Brian Cox initiated this case against its former officer Mike Fina, his companies Blue Skies Connections, LLC, True Wireless, Inc., Government Consulting Solutions, Inc., Mussell Communications LLC, and others. This case also arises from the June 2021 transaction by which SurgePays sold True Wireless to Blue Skies. During the litigation of CJ-2021-5327 described above, SurgePays learned information that showed Mike Fina breached his duties owed to True Wireless during his employment and consulting work for True Wireless prior to SurgePays’ sale of True Wireless to Blue Skies. SurgePays alleges that Mike Fina conspired with the other defendants to damage True Wireless thereby harming the value of the company and causing its eventual sale at a greatly reduced price. SurgePays asserts claims for (i) breach of contract; (ii) breach of fiduciary duty; (iii) fraud; (iv) tortious interference; and (v) unjust enrichment. At this stage, no defendant has asserted a counterclaim against SurgePays. SurgePays filed a Second Amended Petition on January 27, 2023. Defendants Fina, Blue Skies, True Wireless, and Government Consulting Solutions filed a Motion to Dismiss on March 10, 2023. On June 29, 2023, the Court granted the Motion to Dismiss, ruling the claims asserted are “derivative” and could only be asserted by the True Wireless entity now owed by Blue Skies. The Court rejected SurgePays’ request to certify this ruling for immediate appeal. Defendant Misty Garrett filed a Motion for Summary Judgment seeking the same relief as the Motion to Dismiss, which was granted by the Court. It is SurgePays’ intent to evaluate an additional options in the Court’s dismissal of Fina, Blue Skies, True Wireless, Government Consulting Solutions, and Misty Garrett. At this stage, no attempts at settlement have been made.

All claims against all parties have been adjudicated by the Court. SurgePays filed a Motion for New Trial, which was denied by the Court on February 20, 2025. SurgePays’ has filed an appeal of the Court’s dismissal of Fina, Blue Skies, True Wireless, Government Consulting Solutions, and summary judgment for Misty Garrett.

With regard to the appeal against Misty Garrett and Misty Garrett’s claims against SurgePays, Misty Garrett and SurgePays have entered into a Settlement Agreement and Release dated as of October 16, 2025 in which the parties have agreed to dismiss all matters in the courts and release each other from liability, with an agreement to file such dismissal documents at the in the respective courts.

SSB Communications, Inc., Plaintiff v SurgePays, Inc., and American Broadband & Telecommunications Company, Defendants, Case No. DC-26-07054

District Court 116 th Judicial District, Dallas County, Texas filed April 20, 2026. Plaintiff filed this collection suit seeking an amount over $250,000 but less than $1,000,000 for breach of contract for the provision of goods, plus interest, fees and costs. SurgePays, Inc.’s initial pleading is not due until May 25, 2026. At this time, SurgePays, Inc. is in settlement discussions with Co-Defendant, American Broadband & Telecommunications Company and the Plaintiff.

Ellenoff Grossman & Schole, LLP and SurgePays

Ellenoff Grossman & Schole LLP v. SurgePays, Inc., Index No. 651282/2026, Supreme Court of the State of New York, County of New York, filed March 2, 2026. The action sought recovery of $234,151 in unpaid legal fees, plus costs and attorneys’ fees.

Effective April 7, 2026, the Company entered into a settlement agreement resolving all claims, pursuant to which the Company agreed to pay the total settlement amount of $234,151 in eight equal monthly installments of $29,269, commencing April 2026 and ending November 2026. All required installments have been paid to date. The settlement agreement provides for a default interest rate of 9% per annum on any overdue amounts and is secured by an Affidavit of Confession of Judgment held in escrow by the plaintiff, which may be filed upon an uncured payment default.

Note 9 –Stockholders’ Deficit

At March 31, 2026 and December 31, 2025, the Company had three (3) classes of stock:

Common Stock

● Authorized:500,000,000 shares

●Voting Rights: One vote per share

● Dividends: None declared

● Liquidation Preference: Subordinate to all classes of preferred stock

Series A, Convertible Preferred Stock

● Authorized:13,000,000 shares

● Issued and Outstanding: None

●Voting Rights: Ten votes per share

● Ranking: Senior to all other classes of preferred stock

● Dividends: None

● Liquidation Preference: None

● Redemption: Not redeemable

●Conversion: Each share convertible into one-tenth (1/10) of a share of common stock at the option of the holder

Series C, Convertible Preferred Stock

● Authorized:1,000,000 shares

● Issued and Outstanding: None

●Voting Rights: 250 votes per share

● Ranking: Junior to all other classes of preferred stock

● Dividends: Participating with common stock on an as-converted basis, when and if declaredby the Board of Directors

● Liquidation Preference: Original issue price plus any declared but unpaid dividends

● Redemption: Not redeemable

●Conversion: Each share convertible into 250 shares of common stock at the option of the holder

Securities and Incentive Plan

In March 2023, the Company’s shareholders approved the 2022 Plan (the “Plan”) initially approved, authorized and adopted by the Board of Directors in August 2022.

The Plan initially provided for the following:

See the proxy statement filed with the SEC on January 19, 2023 for a complete detail of the Plan.

Effective January 1, 2025, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December 31, 2024, approximating an additional 2,007,000 shares of common stock. After this increase, total shares authorized and available to be issued under the Plan approximated 6,907,000 shares.

Effective January 1, 2026, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December 31, 2025, approximating an additional 2,185,000 shares of common stock. After this increase, total shares authorized and available to be issued under the Plan approximated 9,092,000 shares.

Of the total shares authorized and available, the Company has reserved shares for its officers, directors and employees for non-vested shares that are expected to vest in accordance with the terms of the related employment agreements and stock options that may be converted into common stock. At March 31, 2026 and December 31, 2025, the Company had sufficient authorized shares to settle any possible awards that vested or stock options eligible for conversion.

Equity Transactions for the Three Months Ended March 31, 2026

Stock Issued for Cash

Underwritten Public Offering

On January 20, 2026, the Company entered into an underwriting agreement with R.F. Lafferty & Co., Inc. for an underwritten public offering of 2,000,000 shares of common stock at a public offering price of $1.25 per share, for gross proceeds of approximately $2,500,000. The offering closed on January 22, 2026. The underwriter was granted a 45-day option to purchase up to an additional 300,000 shares at the public offering price to cover over-allotments. The Company paid fees of $375,000 for net proceeds of $2,125,000. The Company intends to use the net proceeds for expansion of its Lifeline business and for working capital and general corporate purposes.

In connection with the offering, the Company issued warrants to the underwriter to purchase a number of shares equal to 3.0% of the total shares sold (60,000 warrants – see table below), at an exercise price equal to 110% of the public offering price ($1.38/share). The warrants are exercisable commencing six months after the closing date and expire five years after the commencement of sales, and were issued without registration under the Securities Act of 1933 in reliance on the exemption provided by Section 4(a)(2).

The Company issued 7,323 shares of common stock for net proceeds of $14,375 ($1.98 - $2.03/share).

The Company issued 200,000 shares of common stock for services rendered, having a fair value of $334,000 ($1.67/share), based upon the quoted closing trading price.

Recognition of Stock Based Compensation - Restricted Stock Awards – Employees

The Company recognized $7,787 in compensation expense, related to the vesting of these awards.

Debt Discount – Convertible Notes Payable – Common Stock

During the year ended December 31, 2025, the Company issued 31,525 shares of common stock with an aggregate grant-date fair value of $54,828 to lenders as additional consideration in connection with the issuance of convertible notes payable. The fair value of the shares was recorded as a debt discount and is being amortized to interest expense over the term of the related notes using the effective interest method. See Note 5.

Conversion of Debt to Common Stock – Related Party

On March 23, 2026, the Company issued 800,000 shares of common stock to its Chief Executive Officer at a fair value of $707,200 ($0.884 per share) in partial settlement of a related party note payable. The Chief Executive Officer also forgave $292,800 of principal, which was accounted for as a capital contribution from a principal shareholder and credited to additional paid-in capital. The aggregate $1,000,000 was applied as a reduction of the related party note payable, and no gain on extinguishment was recognized. See Note 5.

Equity Transactions for the Year Ended December 31, 2025

In August 2025, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Titan Partners Group LLC, a division of American Capital Partners, LLC (“Titan”), pursuant to which the Company may, from time to time, offer and sell shares of its common stock, $0.001 par value per share, to or through Titan, acting as sales agent and/or principal, in transactions deemed to be “at-the-market offerings” under Rule 415(a)(4) of the Securities Act of 1933, as amended. Under the Prospectus Supplement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $15,000,000, which is within the Company’s current “baby shelf” limitations under General Instruction I.B.6. of Form S-3. The Company will pay Titan a commission of 3.0% of the gross proceeds from each sale. The Company intends to utilize the ATM Agreement, when appropriate, to fund working capital needs on an ongoing basis.

The Company issued 697,691 shares of common stock for gross proceeds of $1,774,636 ($2.12 - $2.98/share). In connection with the capital raise, the Company paid cash as direct offering costs (including professional fees) totaling $123,197, resulting in net proceeds of $1,651,439.

The Company issued 324,000 shares of common stock for services rendered, having a fair value of $641,430 ($1.70 - $2.87/share), based upon the quoted closing trading price.

Stock Issued to Settle Accounts Payable

The Company issued 22,807 shares of common stock to settle outstanding vendor payables, having a fair value of $65,456 ($2.87/share), based upon the quoted closing trading price.

Debt Discount – Common Stock

In connection with the issuance of various convertible notes payable, the Company issued 103,000 shares of common stock, having a fair value of $271,880 ($1.90 - $2.86/share), based upon the quoted closing trading price on each respective grant date. This amount has been recorded as a debt discount. See Note 5 for discussion of the various common stock issuances related to convertible note offerings.

Debt Discount – Warrants

In connection with the issuance of various convertible notes payable and a note payable, the Company issued warrants to purchase shares of common stock, having an aggregate fair value of $1,133,345, comprised of $1,084,927 related to convertible notes payable and $48,418 related to the note payable. The fair value of each warrant was determined using the Black-Scholes pricing model on each respective grant date. These amounts have been recorded as a debt discount. See Note 5 for discussion of the assumptions and inputs used in these fair value calculations.

Treasury Stock

The Company repurchased 333,333 shares of its common stock from a convertible note payable holder for $999,999 ($3/share). In connection with the transaction, the principal balance of the related convertible note was increased by $999,999. See Note 5.

Restricted Stock Awards – Employees

On December 16, 2025, the Company granted 54,331 restricted stock awards (“RSAs”) of its common stock to various employees pursuant to the Company’s 2022 Omnibus Securities and Incentive Plan.

The RSAs vest in full on the third anniversary of the grant date and have a total grant-date fair value of $93,449 ($1.72 per share), based upon the quoted closing stock price on the grant date. Compensation expense of $93,449 will be recognized on a straight-line basis over the 36-month requisite service period.

Non-Vested Shares – Related Parties (Officer and Directors) – and related Vesting

Chief Financial Officer

In November 2023, the Company granted 600,000 shares of restricted common stock to its former Chief Financial Officer (CFO), having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price on the grant date. The award was structured in two tranches, with 400,000 shares vesting ratably over the period July 2024 through December 2024 and 200,000 shares vesting on December 31, 2025. All shares vested in accordance with their original vesting schedules. See Note 8 for additional information regarding the CFO employment agreement.

Board of Directors

2025 Grant

In May 2025, the Company granted an aggregate of 150,000 shares of common stock to various members of its Board of Directors, having a fair value of $474,000 ($3.16/share), based upon the quoted closing trading price on the grant date. The shares vest upon the earliest of the following:

Effective December 31, 2025, a board member resigned their position. In accordance with the terms of their agreement, all unvested shares vested immediately upon resignation. As a result,88,880 shares of common stock vested on December 31, 2025.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense recognized for all officer and director arrangements for the three months ended March 31, 2026 and 2025:

The following is a summary of the Company’s non-vested shares at March 31, 2026 and December 31, 2025.

Stock Options

Stock option transactions for the three months ended March 31, 2026 and the year ended December 31, 2025 are summarized as follows:

Three Months Ended March 31, 2026

Stock Options – Employee Terminations

324,750 options expired due to forfeiture, including 318,318 options held by our former Chief Financial Officer.

Year Ended December 31, 2025

Stock Options – Chief Executive Officer, Chief Financial Officer and Employees

The Company granted an aggregate of 1,144,116 fully vested, seven-year stock options for services rendered, allocated as follows:227,336 to its Chief Executive Officer (CEO),143,979 to its Chief Financial Officer (CFO), and 772,801 to various employees. The aggregate grant-date fair value was $1,701,735, of which $552,286 related to the officers and $1,149,449 related to employees. All options have an exercise price of $1.75 per share.

The fair value of these stock options was determined using the Black-Scholes option pricing model with the following inputs:

Stock Options – Employee Terminations

17,253 stock options were cancelled in connection with employee terminations.

Stock-based compensation expense related to stock options for the three months ended March 31, 2026 and 2025, was as follows:

Warrants

Warrant activity for the three months ended March 31, 2026 and the year ended December 31, 2025 are summarized as follows:

Three Months Ended March 31, 2026

Warrants Issued with Convertible Debt

The Company issued 375,000 warrants in connection with convertible notes #7 and #8. See Notes 5 and 6.

Warrants Issued – Equity Offering

The Company issued 60,000 warrants in connection with a capital raise of $2,500,000. See above.

Note 10 –Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.

The Company evaluated the performance of its operating segments based on revenue and operating loss. All data below is prior to intercompany eliminations.

Segment information for the Company’s operations for the three months ended March 31, 2026 and 2025, are as follows:

Segment information for the Company’s assets and liabilities at March 31, 2026 and December 31, 2025, are as follows:

All intercompany accounts are separately presented above as both a component of the assets and liabilities. These amounts net to $0 in the Company’s consolidated balance sheets.

Note 11 –Subsequent Event

Subsequent to March 31, 2026, the Company had the following transactions:

Stock Issued for Services – Related Party

On April 1, 2026, the Company issued Mr. Cox 500,000 shares of common stock for services rendered, having a fair value of $360,000. See Note 8.